Insurance Companies Act in Bad Faith When They Set Goals for Cancellations or Pay Bonuses Based on Cutting Claims

The Los Angeles Times recently reported that the State of California fined Health Net Inc. over $1 million for setting goals for its adjusters based on the cancellation of benefits. Apparently, Health Net also paid bonuses at least partly based on how many policy holders were dropped and the money saved as a result. In the insurance law realm, doing this sort of thing is not acceptable, and in most cases, in my opinion, likely constitutes insurance bad faith and may also violate the applicable unfair insurance claims practices laws (in North Carolina and other states). Insurance companies are certainly entitled to make money, but on the claims side, claims adjusters and those with the power to cut benefits cannot be given incentives to stop benefits, reduce coverages, or deny claims. These kinds of incentive programs are not new: California also fined disability insurance giant UNUM Provident several years ago (somewhere around $15 million), in part, I believe, for engaging in some of the same types of activities. This Health Net scandal appears to be more of the same in the way of insurance bad faith and insurance unfair claims practices.